The Shift of the Retail Landscape via online-offline Convergence

Deck builders, Architects, Designers this article is for you. Learn how to deal with the shifting landscape of retail.

The landscape of retail has been undergoing a dramatic transformation in recent years, marked by the simultaneous decline and resurgence of offline stores. As traditional brick-and-mortar retailers face closures and diminishing foot traffic, a new breed of retailers, born in the digital age, has emerged to embrace offline spaces in innovative ways.

This paradigm shift raises essential questions about the future of retail: How can traditional retailers adapt to the changing landscape, and how can online-first retailers leverage physical spaces to enhance customer experiences?

This article delves into the dichotomy of retail's evolution, as illustrated in the article "The Store Is Dead — Long Live the Store" by David R. Bell, Santiago Gallino, and Antonio Moreno, published in MIT Sloan Management Review in March 2018.

Offline Demise and Renaissance: A Paradox of Retail

Credit Suisse's projection of over 8,500 store closures in the United States in 2017 and the prediction that 25% of shopping malls would shrink or close soon underscores the challenges faced by legacy offline retailers. In contrast, online-first brands like Away and Warby Parker have successfully established a physical presence through pop-ups, showrooms, and full-fledged stores.

Even e-commerce behemoth Amazon.com has entered the brick-and-mortar scene with bookstores and plans for AmazonFresh grocery stores. This paradoxical situation encapsulates the idea that offline retail is both in decline and simultaneously undergoing a renaissance.

The Bonobos Case: A Journey from Online-Only to High-Touch Offline

The case of Bonobos, founded in 2007, exemplifies the shifting nature of retail. Initially launched as an online-only retailer by MBA students Andy Dunn and Brian Spaly, Bonobos aimed to disrupt the industry by eliminating the need for physical stores. However, a decade later, the company embraced a new form of physical retail: the "zero-inventory store."

This concept combines a small physical footprint with an emphasis on high-service experiences. Customers engage with products in person, place orders via tablets, and choose their preferred delivery location. Bonobos' evolution underscores the significance of merging the benefits of physical presence with the convenience of e-commerce.

Convergence of Online-Offline Retail: Small Footprint, High Experience

The transformation in retail points towards a future where the size of the store becomes less significant than the quality of the customer experience. Whether initiated by online-first retailers expanding offline or offline-first retailers enhancing in-store experiences, the common thread is the shift from fulfillment-centric to experience-centric spaces. The showroom concept, which originated with online-first brands, is gaining traction. Online-first retailers like Bonobos have pioneered high-touch, small-footprint stores that prioritize experiential engagement, redefining the role of physical spaces in retail.

Benefits of Convergence for Offline-First Retailers

The showroom concept offers a valuable model for traditional offline retailers. By embracing a smaller store footprint and focusing on creating immersive experiences, these retailers can counter the challenges posed by e-commerce competitors. Integrating technology to facilitate seamless shopping experiences while retaining the tactile and personal aspects of physical shopping can bridge the gap between the convenience of online and the sensory engagement of offline retail. Through this convergence, offline-first retailers can attract and retain customers by aligning with the evolving consumer preferences for experiences over mere transactions.

Expanding Horizons for Online-First Retailers

Conversely, the growth of online-first brands into offline spaces provides unique opportunities for enhancing brand visibility and engaging customers in new ways. Physical stores enable online-first retailers to forge stronger emotional connections, demonstrate product quality, and capture immediate feedback. This shift also allows these retailers to leverage the "touch and feel" aspect of shopping, which online platforms inherently lack. Furthermore, offline spaces can serve as hubs for community engagement, fostering a sense of belonging that transcends digital interactions.

The retail industry is experiencing a paradoxical evolution where the decline of traditional offline stores coincides with the resurgence of innovative physical spaces. The case of Bonobos and the convergence of online and offline retail demonstrate that the future of retail lies in creating high-touch, experience-driven spaces, regardless of the retailer's origin. As the boundary between online and offline blurs, retailers must reimagine their strategies, embracing small footprints, immersive experiences, and seamless technology integration. This dynamic transformation underscores that the store, far from being dead, is evolving into a hybrid space that bridges the gap between digital convenience and physical engagement. As retailers navigate this shift, they can harness the power of the showroom to thrive in an ever-changing retail landscape.

#Retail Evolution #Online-Offline Convergence #Retail Paradigm Shift #Showroom Retail #Retail Experience #Brick-and-Mortar Revival #Online-First Brands

#Offline-First Retailers #Future of Retail #Customer Experience #E-commerce Trends #Physical-Digital Integration #RetailTransformation #StoreRedefinition

#SmallFootprintStores

Retail Innovation, Consumer Behavior, Hybrid Retail Spaces, Retail Strategy, Retail Technology, High-Touch Retail, In-Store Engagement, Community Building, Convergence, Digital Retail, E-commerce, In-Store Experience, Offline Shopping, Online Shopping, Retail Landscape, Retail Technology, Brick and Mortar, Online-Offline Integration, Omni-channel Retail, Retail Innovation, Shopping Trends, Customer Experience, Retail Strategy, Online Retailers, Retail Trends, Retail Transformation, Retail Evolution, Retail Adaptation

Touch and Feel Shopping, Store Design Trends, Retail Branding, Retail Customer Journey, Multichannel Retail, Retail Store Revamp, Retail Customer Engagement, outdoor space

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3. See, for example, M. Addady, “Amazon Wants to Open 2,000 Grocery Stores Across the U.S.,” Fortune, Oct. 27, 2016.

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5. Spaly went on to found Trunk Club, which sold to Nordstrom for $350 million. This “curated commerce in a box” has found favor with Stitch Fix, an online subscription and personal shopping service, as well.

6. L. Zumbach, “Bonobos CEO Says ‘Guideshop’ Model Is Working,” Chicago Tribune, April 25, 2016.

7. “Shops to Showrooms: Why Some Firms Are Opening Stores With No Stock,” The Economist, March 10, 2016.

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9. Lenihan delivered this insight while giving a guest lecture to MBA and undergraduate students at the Wharton School.

10. L. Dishman, “Inside LA’s New, Futuristic Store — Magic Mirrors Included,” Oct. 8, 2015, http://fortune.com.

11. This concept has a long and important history in retailing. In his best-selling book, “Why We Buy: The Science of Shopping,” Paco Underhill introduced and validated the idea of an anthropological view of shoppers. His researchers literally followed shoppers through the store environment in order to glean nuggets of insight into their behavior.

12. As of January 2018, Bonobos had 48 Guide Shops throughout the United States. https://bonobos.com/guideshop.

13. D.R. Bell, S. Gallino, and A. Moreno, “Offline Showrooms in Omnichannel Retail: Demand and Operational Benefits,” Management Science, published online March 23, 2017.

14. The Retail Equation, “2015 Consumer Returns in the Retail Industry,” (December 2015), PDF.

15. Once frames are fitted with customer-specific prescription lenses, the salvage value is close to marginal cost.

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21. A customer walking in New York City enters “Nike stores” in the search bar on his or her mobile phone. Brickwork surfaces store locations and appointment options.

22. Additional examples are available from the authors, upon request. All the reported differences are statistically significant with p<.01.

23. K. Stock, “Staples Is Shrinking; Radio Shack Is Sinking,” March 6, 2014, www.bloomberg.com.

24. For the technically inclined, the simulated demand for each store comes from a log-normal distribution (to ensure that the sales number generated for each store and from each draw from the simulation is positive).

25. “95% in-stock rate” means that there is a 95% chance that a customer will find his or her preferred item in stock.

i. See D.R. Bell, J. Choi, and L. Lodish, “What Matters Most in Internet Retailing,” MIT Sloan Management Review 54, no. 1 (fall 2012): 27-33.

26 Bell, David R., et al. "The Store Is Dead — Long Live the Store." Https://Sloanreview.Mit.Edu/Article/The-store-is-dead-long-live-the-store/, sloanreview.mit.edu/article/the-store-is-dead-long-live-the-store/.

LINK to article: https://sloanreview.mit.edu/article/the-store-is-dead-long-live-the-store/